Some facts about property investors and interest-only loans
Here’s how interest-only loans stack up against principal and interest loans for property investors in 2017.
- According to ASIC, up to 70% of property investors use interest-only loans
- Interest-only borrowings in Australia rose from $88.7 Billion in 2012 to $153.8 Billion in 2015
- In 2017, lenders have increased interest-only loan rates by up to 0.7% p.a. compared with principal and interest rates. Current interest rates can typically be 4.3% p.a. for an interest-only loan, but only 3.9% p.a. for a principal and interest loan – whereas at the start of 2017, the interest rate for the two loan types approximately equal.
- Assuming an example situation involving a $544,000 home loan over a 30 year term for an investment property worth $680,000, and assuming the owner has a personal gross income of $118,000 a year and $300 a week rental income..
– An interest-only loan would yield a higher annual tax benefit ($3,039 versus $2,123), and lower monthly mortgage payments ($1,949 versus $2566)
– But, after one year, a principal and interest loan would pay off a whopping $9,748 of the principal – which nets out as principal and interest being the better option to the tune of $3,778 in the first year alone.
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